How Much Does it Cost to Hire a Real Estate Agent

Real estate agent salaries

Real estate agent salaries aren’t based on a yearly or hourly wage. Instead, most agents make money only after a home has sold.

This income is in the form of a commission, which equates to a percentage of the home’s selling price. So a real estate agent’s salary depends on the sales price of homes where they work.

The National Association of Realtors and Redfin both estimate the average commission charged by agents at 5-6%.

That’s a lot. Zillow reports the median sale price of a U.S. home was just over $287,000 in May of 2021.

A 6% commission on a home selling at $287,000 would equal $17,220. Even after a 50/50 commission split, an agent could earn $8,610 on the home sale.

And, at the high end of the market, the figures must bring tears even to rich people’s eyes. A homeowner who sold a mansion in Manhattan or Beverly Hills worth $50 million would be writing (through those tears) $2.5 million or $3 million commission checks.

But before you decide to launch your new career as an agent, remember that not every real estate professional works in New York or California, and not every real estate transaction includes seven figures.

How Do Real Estate Agents Get Paid?

It’s standard practice for the seller to cover the commission for both the seller’s agent and buyer’s agent. So, if you’re buying a home, you may get all the benefits of using an agent for free! The commission is paid at the end of the deal as part of the closing costs and comes out of the sales proceeds.

It’s standard practice for the seller to cover the commission for both the seller’s agent and buyer’s agent. So, if you’re buying a home, you may get all the benefits of using an agent for free!

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What do realtor fees cover?

Realtor fees compensate agents for the time they devote to your transaction.

For buyers, this typically includes the following services:

  • 🔎 Identifying properties that meet your needs and budget
  • 🏠 Scheduling showings and attending open houses
  • 📝 Writing and submitting offers
  • 🤝 Negotiating deals and facilitating closing

For sellers, realtor fees typically cover services such as:

  • 💲 Researching comparative sales and developing a pricing strategy
  • 🎀 Assisting in preparing the home for sale
  • 💻 Listing the property on the multiple listing service (MLS)
  • 📣 Marketing your property listing
  • 🤝 Negotiating deals and facilitating closing

Realtor fees also typically cover some basic expenses agents may incur as they guide you through the home buying or selling process. This includes paying for things like:

  • Professional home photography
  • Printed flyers
  • Home staging
  • Drone photography
  • Video tours

Always check with your agent upfront to learn what services they do and don’t include in their standard fees so you’re on the same page.

Advertising/Marketing

Marketing and advertising is very broad and could encompass anything from yard signs and flyers to business cards. Yard signs each cost about $50-85 but vary depending on size and material. It is recommended that you start your career with at least two yard signs, two riders, two open house signs, and five pointers to be properly prepared. Business cards can also cost you about $50 for 1,000 cards and 100 flyers can set you back just $35 if you print at home. There are always cheaper options when it comes to your marketing efforts so you can make sure you’re making the right bang for your buck.

How is the commission divided between agents?

The commission that’s paid by the seller will be split among each agent and the brokerages through which they hang their real estate license. Let’s say you sell your home for $220,000 with a 6% commission rate. You pay a commission of $12,000 and each agent has a 70/30 split agreement with their brokerage. Here’s how that might look:

  • Listing agent: $4,200 (70% of their $6,000 commission share)
  • Listing broker: $1,800 (30% of their $6,000 commission share)
  • Buyer’s agent: $4,200 (70% of their $6,000 commission share)
  • Buyer’s broker: $1,800 (30% of their $6,000 commission share)

Save money with a discount broker

Many people wondering, “how much does a real estate agent cost” search for things like, sell my home cheap, because they want to be able to make as much money from the sale of their house as possible, which is understandable. In fact, depending on their situation, it may be required.

What many people do not realize, however, is that

What many people do not realize, however, is that they can save thousands of dollars just by using a discount real estate broker. Discount brokers and agents do everything that a “traditional” real estate agent does, but for a lower commission.

Discount real estate agents leverage technology and a higher number of listings to be able to offer their services for much less money. In the case of 1 Percent Lists, the listing agent’s commission is just 1%.

The buyer’s commission, while negotiable, is generally set between 2.5% and 3%.

That means that in the example above, the total commission on selling the same $242,300 house would be, at most, $9,692. In that example, using a discount real estate agent would save you almost $5,000. That is money that goes straight into your pocket!

How Real Estate Commissions Work

When a property is put on the market, the seller and the listing broker sign a listing agreement, which is a contract detailing the terms of the listing, including the broker’s compensation—usually a commission. It’s important to note that the commission is always negotiable. In fact, it is a violation of federal antitrust law for members of the real estate profession to attempt, however subtly, to impose uniform commission rates.

Commissions generally range between 5% and 6% of the final sale price, though they may be higher or lower based on market conditions. Unless the buyer and seller negotiate a split, it is the seller who pays the commission. Most sellers factor the commission into the asking price, so it could be argued that the buyer always pays at least part of the commission, either directly or indirectly (through a higher purchase price).

Both the seller's agent and the buyer's agent have agreements with their sponsoring brokers that specify the agent's cut of the commission. It can be a 50/50 split between the broker and the agent or any other split they choose.

How Commissions Are Shared

Real estate commissions are often divided among several people. In a typical real estate transaction, the commission is split four ways:

  • Listing agent—the agent who took the listing from the seller
  • Listing broker—the broker who employs the listing agent for the seller
  • Buyer's agent—the agent who represents the buyer
  • Buyer's agent's broker—the broker who employs the buyer's agent

How to avoid paying Realtor fees

In 2019, just 11 percent of home sales were sold by owners without the help of an agent, according to the National Association of Realtors (NAR). In addition, NAR says, for-sale-by-owner homes (FSBOs) typically sell for less money than homes sold by Realtors. In many instances, FSBO sellers already know the buyers who end up purchasing their homes. Buying without a Realtor is also doable, but the jury is out about whether it’s a wise move — especially in this market.

When you shop around for Realtors, ask them from the outset what their commission is and compare the terms of each person you talk to. If you think the fee is too high, talk to them about lowering it.

“In certain situations where there’s a competitive environment for a prime or trophy listing, Realtors sometimes will negotiate the commission upfront,” Duffy says. “For example, if I’m listing a $4 million home at 6 percent, that’s a lot of money. In a situation like that there is greater flexibility to negotiate the commission — if you get $100,000 or $80,000 instead of $120,000, it’s still a good payday.” If the transaction is being handled on both sides by agents from the same brokerage, you might have more leverage as well.

What is a fair real estate commission?

A commission rate between 5%-6% is standard for most markets to hire a full service real estate agent. This rate should mean you have an agent who is dedicated to selling your home for the best possible price, who is available and communicative, and who is willing to shepherd the transaction from start to finish. If an agent isn’t willing to offer all or the majority of services listed above, you should interview more candidates.

When Are Real Estate Fees Paid?

Real estate commissions are deducted from the sale proceeds at closing and paid directly to the brokers, who split them with the agents involved.

Types of real estate agents

You may hear the terms ‘real estate agent,’ ‘Realtor,’ or ‘brroker’ used interchangeably. But there are some key differences between these professionals.

Real estate agent vs. Realtor

All Realtors are real estate agents or brokers. But not all real estate agents or brokers are Realtors.

Realtors are members of the National Association of Realtors (NAR). And the Realtor trademark is intended to stop agents who aren’t Realtors from claiming they are.

The NAR would say, with some justification, that its members have greater expertise (they have to pass additional exams) and are held to higher professional standards than other real estate agents.

Real estate agent vs. broker

A real estate agentis someone who has passed his or her state’s relevant exams and who’s been licensed to practice as an agent.

A real estate license is the lowest level of qualification for people to facilitate the buying and selling of homes.

Each state sets its own exam standards and continuing education requirements. It’s easier to get a licence in some states than others.

A real estate broker has gone the extra mile and taken additional exams. So he or she should — theoretically — have greater knowledge and expertise than an agent.

And a broker is more likely to have a senior post in a real estate brokerage, often managing other agents’ activities.

The Bureau of Labor Statistics reports the national median income of a real estate agent was $51,220 in 2020.

By contrast, the BLS also found real estate brokers tend to make about $10,000 a year more than sales agents.

Real Estate License Renewal

Total Estimation: $317

The final slew of fees to become a real estate agent is your license renewal. If you want to renew your real estate license, you'll have to enroll in a continuing education course and pay the license renewal fee.

How much does it cost to renew your real estate license? In the state of California, it can cost around $317, depending on the continuing education course.

How often do you have to renew your real estate license? Every 4 years you have to renew your license. This is because practices change in real estate. So, to keep agents current with the industry, they have to take a continuing education course.

#15. Continuing Education Course

Estimation: $72

A real estate agent continuing education course is required to renew your license. The curriculum requirements are 45-hours of studying and you must pass the online quizzes and final exams. CA Realty Training offers an online continuing education course that you can complete in as little as 6 days. Other programs vary in their accessibility, cost, and program.

#16. License Renewal Fee

Cost: $245

To renew your license, you must provide proof of completing the continuing education course and pay the $245 fee in California. Afterward, you don’t have to think about renewal for another 4-years. If you are late for the renewal, you could have your license suspended and the fee will increase.

How much are typical realtor fees?

Realtor fees are typically 6% of the final sale price of a home. The commission is split evenly, with 3% going to the listing agent and their broker, and 3% going to the buyer’s agent and their broker.

The home seller pays both the buyer’s agent and the listing agent’s commission.

How does this actually shake out? On the sale of a $400,000 home, each agent makes about $12,000.

*On the sale of a $400,000 home.
PercentageDollar amount*
Buyer’s agent commission3%$12,000
Listing agent commission3%$12,000
Total commission paid by seller6%$24,000

» MORE: How does a 3% real estate commission work? 

Real estate commission splits

If a realtor works for a brokerage (RE/MAX or Coldwell Banker, for example), they don’t get to keep their full commission. Typically, agents split their commission 50/50 with their brokerage.

A 50/50 commission split is common, but some brokerages may structure splits differently. Sometimes, splits may favor the agent more depending on their tenure with the brokerage (as in more experienced agents share less with the brokerage). 

Commission splits help cover shared brokerage expenses, like advertising, licenses for technology tools, and office equipment. Because of brokerage commission splits, your agent makes much less than what you’ve paid in realtor fees.

Commission split on a $400,000 home

*Assuming a $400,000 home sale with a 3% commission rate.
Agent’s commission$12,000
50/50 brokerage split$6,000
Agent’s final pay*$6,000

» MORE: What’s a real estate broker?

Realtor fee calculator

Use this realtor fee calculator to estimate how much you’ll pay in real estate  commission when you sell your home.

Simply enter your estimated home sale price along with the percentage you’ll pay to each agent. Remember, sellers are responsible for covering both the listing agent and buyer’s agent fees.

FAQs about realtor commission

A fair real estate commission depends on a number of factors, including your home price, how quickly you expect your house to sell, and what services your agent will provide. You can sometimes negotiate a lower listing fee, especially if you're willing to do more of the work yourself. But most sellers find the most overall value with a low cost realtor who offers full service for a discounted rate. Find the best low commission companies here!

Real estate commission costs an average of 5.37% nationwide, but varies by state from 4.45% to 6.34%. Find average commission rates in your state here!

Related links

ARTICLE SOURCES[1] National Association of Realtors. "Quick Real Estate Statistics." [2] Collateral Analytics. "Saving Real Estate Commissions At Any Price." [3] Zillow. "United States Home Values." 

How commissions have changed over the years

Since the early 1990s, Realtor commissions have seen a fairly steady decline. In 2021, the average commission was 5.5 percent — down from more than 6 percent in 1991.

This isn’t to say the total amount Realtors earned decreased, however. In strong selling markets, home prices are high and sellers receive multiple offers. This allows more room for negotiation on the commission, so Realtors may accept a lower commission to earn a higher amount overall.

As the market slows down, Realtor commissions may rise again and become less negotiable. Even so, a seller with a  high-priced listing may still be able to negotiate a lower commission more effectively.

Professional Fees

You will spend an estimated $100-500 per year on your initial license and subsequent renewal fees. These costs vary widely from state to state so it’s important to check your local requirements. After you are licensed, you may choose to become a part of a local or national association, such as the National Association of REALTORS® (NAR) and those fees can fluctuate (NAR’s annual fee is $120). Your brokerage may provide access to a multiple listing service, but if you have to cover the costs, it could be anywhere between $25-100 per month for these services.

Final Thoughts on the Fees to Be a Real Estate Agent

Money is a big conversation topic. The entry cost to be a real estate agent is high and the cost of a real estate license is only the start. From the outside looking in, it can seem the cards are stacked against you. The best thing to do is take it slow and be smart.

How you manage your money will determine your success. You can make this job work–even as a part-time agent. Be honest with yourself and make a business plan.

Now that you know the fees to be a real estate agent, the only thing left to do is to become one.

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